Design Business by the Numbers: 3% Proposal Percentages

This is a post in an occasional series I'll be running on ChangeOrder about the benchmarks that design businesses use to help maintain their long-term success. These benchmarks are drawn from the research that I conducted when writing Success by Design: The Essential Business Reference for Designers.

You need to write that proposal to get the project. And you need to do a good enough job of writing the proposal to make sure your client understands why you're the right partner for it.

But that proposal isn't going out the door until it's been finessed within an inch of its life. Right?

As designers, we may be perfectionists at heart. But when crafting a proposal, we can't be carried away and lose ourself in the effort like we're polishing a beautiful design.

A useful benchmark to make sure you're not spending too many hours on your proposal is to hold yourself to a three-percent proposal percentage. This benchmark was shared with me by David Conrad at Design Commission. His studio uses this benchmark to make sure that they never spend more than two to three percent of proposed project budget to secure the project. This includes any necessary negotiation and revisions with the client through the new business process. The time spent on new business is then factored into the hourly rate and overall utilization of the studio, rather than being tied to successful project fulfillment.

Putting the hours used for writing a proposal against the future project budget is a big accounting no-no. This is a common mistake a lot of design studios make.

Why is this a bad idea? Because you are blurring the lines between the expenses your firm bills against the project budget and the expenses that your firm incurs on all the activities acquired independent of staffing those projects. You should be optimizing your new business process to acquire work independent of how efficient you are in fulfilling the projects once they're in your studio. This is the equivalent of trying to keep a monthly budget for your household, only to discover that someone else in the household has been using your credit cards and racking up debts that suddenly you're liable for. This isn't fair to anyone involved.

So get out of this "credit-card spending" mentality. You don't have an incentive to spend weeks on a proposal. You should be spending the minimum necessary effort to generate the best proposal for a potential project that you have a high likelihood of winning.

If you're going to try and keep to this percentage, here are some common issues that stand in the way of successful implementation:

You haven't set up templates to work from on your proposals. If you're generating new or custom proposal elements that can't be leveraged or updated for future proposals, you're burning time that won't make your new business acquisition process more efficient. Even if you're selling bespoke services, you can generate templates for how you sell them.

You aren't pitching a good fit in terms of subject matter or expertise. If you're conducting reams of research to figure out what to say in every proposal, you may not be perfectly suited to win the work. Be selective about where you make these investments at the proposal stage, rather than have those activities become part of the paid work.

There is too much time to write the proposal. It's important that you ask for the appropriate amount of time to craft a quality proposal. However, I've seen proposals drag out in draft after draft because there isn't adequate motivation or pressure to complete it and send it out. This is where bad habits can form. Try to hold yourself to a "shadow budget" and realistic schedule for writing, vetting, and submitting your proposal.

Other posts in this series include bid/win ratios for new business pitching.